Creditors of Eurozone countries can be seriously affected by the outbreak of coronavirus, since the slowdown in economic growth creates a burden on borrowers, according to the latest report of the European officials, reports Reuters.
The document was the first pan-European assessment of the creditors of the region, as countries including Germany and Italy, are considering what steps can be taken to help troubled banks.
European banks, located in the center of the economic collapse ten years ago, since then struggled to recover, and now they are faced with the economic downturn, which may prevent them.
Representatives of the European Commission came to the conclusion that “there is a risk for the financial stability of the Euro area”.
“Preventing serious and long-lasting damage may require additional and substantial efforts,” they wrote.
In the document officials emphasize the impact on banks’ outstanding loans and higher funding costs amid the market fluctuations and the credit downgrade, making the conclusion that, although they are now stronger than in the past, banks remain vulnerable.
In a letter sent to the European Commission in response to its assessment of 24 April, the European Central Bank (ECB) stated that all the major banks in the currency bloc are solvent, but have included a list showing that some countries were protected better than others.
These data showed that Spanish banks have the weakest capital reserves in the currency bloc to withstand any economic downturn even worse than in Italy. The Netherlands and Belgium have become the leaders in this regard.
Earlier this month, the Bank of Spain Pablo hernández de cos stated that the restrictive measures introduced to combat the spread of coronavirus have had a very strong impact on the economy and created risks for banks.
The grim assessment identifies the vulnerability of the sector to unpaid loans or an investment loss due to a virus, as some governments are considering ways to strengthen banks.
“Ultimately the shock of the coronavirus will affect banks. Banks are now much more sustainable than in the past, but that won’t stop negative impact,” — said the Chairman of the Council of economic experts the German government Lars feed.
The Council, which advises the office, the Ministry of Finance, and the Ministry of the economy on issues of policy, warned the government in the report on page 101 at the end of March that the economic downturn may flow into the banks.
Some German officials have considered the idea of forced recapitalization of banks, told Reuters sources. The Ministry of Finance stated that such plans are currently not considered